state bar texas bankruptcy law... · the bankruptcy law section held its biennial bench/bar...

IN THIS ISSUE

Judicial Profile of the Honorable Richard J. Schmidt ......................................2

Review of Bench/Bar ........................................................4

2011 Bankruptcy Bill Cartoon ........................................9

Supreme Court Update – Stern v. Marshall ..............................................................10

Coverage of DAYBL Reception for Judge Jernigan ............................................................13

Fifth Circuit Update – Texas Wyoming Drilling ..................................................14

2010 United Operating Bankruptcy Bill Cartoon ........................................................................15

Fifth Circuit Preview – Reed v. City of Arlington ..........................................16

Review of Eighth International Bankruptcy Seminar – Dublin ....................................17

Consumer Corner – Schwab Update........................18

Legislative Update – New Chapter 64 of the Texas Property Code ..........................................23

Member Publications ....................................................27

Troop Movement ..............................................................27

Editorial Staff......................................................................27

Preview of Upcoming Conferences ..........................28

Calendar of Events ..........................................................28

Young Lawyers/Call for Articles ................................29

A MESSAGE FROM YOUR CHAIR

I look forward to serving the section aschairman for the coming 12 months.

My first report is a thank you note.

Thanks for selecting me as chairman. Ihope I do a good job.

Thanks to the section officers and council for serving our group sowell. They volunteer many hours for our section and the bankruptcy benchand bar.

Thank you to Byrnie Bass, immediate past chairman. Last year was ahistorical year for the bankruptcy section. We did so much—a receptionfor Judge Houser at the NCBJ, great Advanced Business and Consumerseminars, several Starting Out Right conferences for young lawyers,Moneywise, Elliott Cup, and a successful Bench Bar. However, the mostimportant thing the section did was donate a large sum to several probono organizations which provide legal services to the poor. Byrnie led thesection, and he kept us laughing along the way.

Thank you to Laurie Babich and Judge Richard Schmidt for chairing theBench Bar and to Michelle Mendez and Debbie Langhennig for making itall happen. I think it was the best one we have held

By the time this is printed, summer will be nearly over. I hope yourswas fun and safe.

Judge Harlin DeWayne “Cooter” Hale

September 2011 — Volume 10 • No. 3

STATE BAR of TEXAS

BANKRUPTCY LAW Section Newsletter

It is an impressive record that Judge Richard Schmidt has presided over several “billion dollar” bankruptcies and many nine-figure cases, yet even moreremarkable that they all were Corpus Christi Division cases, making CorpusChristi the third most popular large-case venue in the United States.

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Judge Schmidt took the bench in 1987, becoming the first bankruptcy judgeto be permanently venued in the Corpus Christi Division, and has since then“ridden the circuit” including the Brownsville, McAllen, Laredo, and formerly theVictoria divisions. Within his first five years, Judge Schmidt presided over his firstcase of national recognition, In re Greyhound. Since the early 90’s Judge Schmidthas presided over at least three billion-dollar Chapter 11 cases, including In reAsarco, LLC (the largest environmental case filed to date in the United States) and Inre TransTexas (a venue transfer by consent of all debtor and creditor constituenciesfrom Massachusetts). Judge Schmidt presided over the first confirmed and finalon appeal silica mass-tort case (sitting in tandem with the District Judge HaydenHead) and has been a leader in matters of first impression in the Fifth Circuit.

Judge Schmidt was a math major from New Mexico State University andattended University of Texas law school. Immediately after law school, he joined theAir Force as a Judge Advocate General’s Corps officer, offering his legal assistanceto the Air Force. He began his private practice in Shreveport, Louisiana in 1973,while continuing as an officer in the Air Force Reserve. Judge Schmidt finallyretired as a full Colonel in 2003 from the Air Force Reserve where he was theCommander of the 917th Support Group and was awarded the Legion of Merit.

Judge Schmidt is one of the most accessible Federal Bankruptcy Judges in thecountry. If a hearing is necessary, his staff arranges it – whether requiring a cellphone conference call hearing while driving to Shreveport during his military servicedays, telephonic hearings from his hotel room, or hurrying back to Corpus Christifrom another division to make an afternoon hearing.

Clearly, what drives a venue like Corpus Christi is the Judge. Creditors,debtors, bondholders, the government and litigants alike recognize JudgeSchmidt’s strong desire for ultimate fairness, which is demonstrated by both hisrulings and his treatment of everyone who appears in his courtroom. He is famous

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Bankruptcy Law Section Newsletter September 2011 — Volume 10 • No. 3

Judge Richard Schmidt,the Venue of Choice:Delaware; New York;Corpus Christi?

By: Eric J. Taube, Hohmann, Taube & Summers, LLP([email protected])

OFFICERS

Honorable Harlin D. Hale, ChairUnited States Bankruptcy Court

Byrnie Bass, Immediate Past ChairLaw Office of Byrnie Bass

Thomas A. Howley, Vice President/Chair ElectJones Day

Layla D. Milligan, SecretaryOffice of Chapter 13 Trustee, Austin

Michelle A. Mendez, TreasurerHunton & Williams, LLP

Beth Smith, Vice President Public EducationLaw Offices of Elizabeth G. Smith

Timothy A. Million, Vice President Communications & PublicationsMunsch, Hardt, Kopf & Harr, PC

Judith Ross, Vice President BusinessBaker Botts, LLP

Honorable Richard S. Schmidt, Vice President Professional EducationUnited States Bankruptcy Court

Behrooz P. Vida, Vice President Consumer DivisionThe Vida Law Firm

Mark E. Andrews, Vice President Law School RelationsCox Smith Matthews, Inc.

Omar Alaniz, Vice President MembershipBaker Botts, LLP

Elizabeth M. Guffy, HistorianLaw Office of Elizabeth Guffy

Albert S. Conly, Non-Lawyer LiaisonFTI Consulting

COUNCIL MEMBERS

Dana EhlrichLaw Office of Dana Ehlrich

Lynn Butler, Brown McCarroll, LLP

Michael G. KellyRush, Kelly, Morgan, Dennis, Corzine,Hansen, PC

William L. WallanderVinson & Elkins, LLP

John P. MelkoGardner Wynne Sewell, LLP

Bill PayneThe Moore Law Firm, L.L.P.

Eduardo V. RodriquezRitcheson, Lauffer & Vincent

Josh SearcySearcy & Searcy, PC

Henry FloresHaynes & Boone, LLP

1 As noted by Professor Lynn M. LoPucki, UCLA and frequent author on bankruptcy venue.

Continued on page 3.

for instructing on the lack of a need for “local counsel,” often reminding a courtroom full of out-of-town lawyers that he “alreadyknows what all the lawyers in Corpus have to say.”

Opposing sides in large dollar disputes often agree on venue in Corpus Christi in complex cases, an indication of Judge Schmidt’sability to quickly and accurately assess a complex set of facts and/or legal arguments and get to the heart of the issue. Jack Kinzieof Baker Botts, lead counsel in the ASARCO Chapter 11 commented: “Judge Schmidt has an uncanny ability to get quickly tothe heart of complex factual and legal issues and is almost unerring in his judgment as to the right and just outcome.” Counselappearing in Judge Schmidt’s court for the first time universally comment that they have not met anyone more gifted in this regard.

As important, however, as Judge Schmidt’s practical approach to cases – is his understanding of when his involvement andguidance is needed and when it is better to let skilled attorneys involved in a case seek his rulings only when they cannot reachagreements. Best stated, Judge Schmidt avoids micro-managing cases that do not require it.

Rhett Campbell recalled that “when I learned that Judge Schmidt was a math major, it helped me understand why he coulddo the numbers and come up with the right answer more quickly than the experts and certainly more quickly than any of thelawyers.... (So), once I’m sure my numbers are correct, I know that Judge Schmidt will follow my calculations quickly and easilyand get to the conclusion immediately. And I know that the other lawyers will probably struggle to understand them. I takeperverse enjoyment in watching this.”

Judge Schmidt’s concern for fair and accurate decisions is reflected in his frequent rulings from the bench, and his patiencein allowing re-argument literally “to the end.” If something is under advisement in Judge Schmidt’s court, it is because the Judgeand his staff are struggling with what is the legally correct and equitably appropriate result. Handling multiple high profile caseshas often brought issues of first impression to his court, or issues involving Circuit Court conflict. Judge Schmidt’s rulingsalways emphasize the practical aspect of Chapter 11 – compromise and settlement.

Judge Schmidt’s involvement in social and bar participation functions include being past President of the Corpus ChristiSymphony; the leading role in the local production of “My Fair Lady” and acting as a member of the board of directors of HaloFlight (the air emergency ambulance service for South Texas). The Judge has spoken at numerous seminars and lectures, and iscurrently the Vice President of the Bankruptcy Bar section on Professional Education of the State Bar of Texas.

Finally, no description of Judge Schmidt is complete without commentary on his sense of humor. As a judge or a speaker,he always brings his immense and off-beat sense of humor in to the equation. An avid cyclist, the Judge brags about his collectionof three (and counting) broken helmets, although his wife Lisa fails to see the humor. In a less contact sport, the Judge is thekeyboard player and a lead singer in “Still Crazy,” a charity-only rock-and-roll band that has performed all over Texas and severalstates over the past 15 years.

Maybe the best summary of Judge Schmidt’s acumen as a judge was made by Alan Gover (White & Case LLP) who, afterbeing debtors’ counsel in the Greyhound Chapter 11 case, has returned on several occasions to Corpus Christi representinglarge-dollar debtors and creditors: “He is a fast study on the law, the facts and the process; clear eyed in seeing the whole picture;patient with, yet discerning about, lawyers, parties and witnesses; even keeled and good humored in all quarters; wise and practicalwith the end product – in other words, Judge Schmidt is an exemplar.” Spot on – just like Judge Schmidt.

Judge Schmidt’s second 14-year term ends in 2015.


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Continued from page <None>.

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The Bankruptcy Law Section held its Biennial Bench/Bar Conference on May 25-27 at the Marriot in Horseshoe Bay,Texas. The conference was themed “A 70’s Disco Adventure” and was well attended by bankruptcy judges, lawyers, and finan-cial professionals.

The conference was conceived eight years ago as the brain-child of several sitting bankruptcy judges with the goal of sharinginformation and getting to know each other better in a casual atmosphere. The first biennial conference was held in 2005. TheHonorable Richard Schmidt, bankruptcy judge for the Southern District of Texas (Corpus Christi) and Laurie Babich law clerkto the Honorable Russ F. Nelms (Fort Worth) served as this year’s course directors and were guided by the other members of theconference’s planning committee.

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OFFICIAL BUSINESS & AWARDS

The Section held its annual meeting during lunch on Thursday, May 26th and outgoing chair R. Byrn (“Byrnie”) Bass, Jr.(Lubbock) provided an update on the Section’s health, led the attendees in voting on the proposed slate of new executive councilmembers, and presented our Section’s special awards for outstanding service.

Official Business

Byrnie Bass provided attendees with a report on the Section’s health. He reported that the Section continued to grow andthat the Section was financially healthy.

A slate of new council members was proposed by motion, seconded, and approved by the Section. Congratulations to ournew council members: Lynn Butler (Austin); Bill Payne (Paris); Joshua P. Searcy (Longview); Eduardo V. “Eddie” Rogriquez(Brownsville); and William L. “Bill” Wallander (Dallas).

Service Awards

The Banco Rotto Award: This award is presented to a Texas bankruptcy legend who has had a lasting impact on the devel-opment of the Texas bankruptcy practice. It is the Section’s highest and most distinguished award.

“Banco Rotto” is Italian for “broken bench” and is the earliest phrase that is associated with the concept of bankruptcy, andis the phrase from which our English term “bankruptcy” is derived. Just as we can trace the origins of bankruptcy to this phrase,the Bankruptcy Law Section honors the recipients of the Banco Rotto award for their contributions to, and their lasting impacton, the bankruptcy profession.

The Bankruptcy Law Section was proud to recognize the Honorable Robert C. McGuire, former chief bankruptcy judgeof the Northern District of Texas for his outstanding service, leadership, and accomplishments as a bankruptcy practitioner,judge, and member of the bankruptcy profession. Among his many contributions to the practice and judiciary, Judge McGuirewas recognized for dedication to judicial service for answering the call back to judicial service as a recalled bankruptcy judgeacross Texas in Austin and Fort Worth. Judge McGuire’s dedication and honorable service to the practice as an attorney andjudge will continue to positively impact our profession.

Judge McGuire’s significant contributions to the bankruptcy profession and his dedicated judicial service were duly recognizedby awarding him the Bankruptcy Law Section’s highest and most distinguished award, the Banco Rotto Award.

The John C. Akard Community Service Award: In 2009, the Bankruptcy Law Section established an award in the nameof the Honorable John C. Akard (retired-Lubbock) to honor current/former practitioners for outstanding achievement and service in the field of bankruptcy. Omar J. Alaniz (Dallas) received this year’s award for his service to the bankruptcy professionthrough his many tireless efforts with the Section’s MoneyWise program, Young Lawyers’ Committee, and his service as theSection’s first vice-president of membership.


1 To view the members of the planning committee, the conference’s many generous sponsors, and entire course program, please see the conference brochure on the Section’swebsite: http://www.txbankruptcylawsection.com/2011BankruptcyLawBench11WebFINAL.pdf


Review of State Bar of Texas Bench/Bar Conference 2011

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The Robert B. Wilson Distinguished Service Award: This prestigious award, named in honor of Robert B. Wilson, thefirst chair of the State Bar of Texas Bankruptcy Law Section, is presented “in deep gratitude for tireless efforts and unceasingdedication and service to the Bankruptcy Law Section of the State Bar of Texas” and was awarded this year to Michael A.McConnell (Fort Worth).

Pro Bono Service Award: This award was presented to Eduardo R. (“Eddie”) Rodriguez (Brownsville) who was recog-nized for his consistent and tireless efforts in promoting pro bono bankruptcy law practice in Texas.

Outstanding Service Award: This award is presented annually to a member of the bankruptcy bar who is selected for hisor her outstanding service to the Bankruptcy Law Section and was awarded this year to William L. (“Bill”) Wallander (Dallas).

Romina L. Mulloy-Bossio Achievement Award:This award was established in 2010 to honor the late Romina L. Mulloy-Bossio,a young bankruptcy lawyer, and is awarded annually to an outstanding young bankruptcy lawyer who demonstrates dedicationto community service, public education and outstanding service to the practice as a young lawyer. This year’s recipient wasFrances A. Smith (Dallas) for her efforts which included expanding the Section’s Starting Out Right program, a legal seminarsponsored by the Young Lawyers Committee, for young and new bankruptcy practitioners.

Outgoing Section Council Member Awards: The Section recognized threeoutgoing members of the Section’s Executive Council for their years of service:Honorable Bill G. Parker (Tyler, 2006-2011), Demetra L. Liggins (Houston,2008-2011) and Scott R. Ritcheson (Tyler, 2010-2011).

Incoming Chair Award: Bynie Bass’s last official act as Chair was to presentthe Honorable Harlin D. (“Cooter”) Hale, bankruptcy judge for the NorthernDistrict of Texas (Dallas) with this award in honor of Judge Hale assuming ourSection’s leadership role for the next year. Congratulations Judge Hale, we all lookforward to an exciting year with you as our Chair.

Outgoing Chair Award: Judge Hale’s first official act as Chair was to presentByrnie Bass with this award for Brynie’s year of service as our Section’s leader. TheSection is grateful for Byrnie’s dedicated and diligent hard work as our Chair.

Eduardo Rogriguez, Frances Smith, Omar Alaniz, Josh Searcy, Judge McGuire ,William Wallander, and Michael McConnell

Continued from page 4.

Brynie Bass and Judge Hale


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PRESENTATION SUMMARIES

Course directors Judge Schmidt, dressed in 70’s attire, and LaurieBabich kicked off the conference presentations with opening remarks andintroduced the first presenter.

The Honorable Carl E. Stewart of the United States Fifth CircuitCourt of Appeals began the conference presentations by remarking that, afterseeing the disco themed conference program and presentation titles, he need-ed to attend a few of them to make sure they met CLE standards. He thendiscussed recent and upcoming 5th Circuit cases that directly or indirectlyimpact the bankruptcy practice.

Professor Linda Eads (Southern Methodist University Dedman Schoolof Law), an expert on legal ethics, and members of the Young LawyersCommittee (Vanessa Gonzalez, Jessica Hanzlik, Joshua Searcy, Eric VanHorn, and Jermaine Watson) discussed ethical dilemmas in determiningwhich parties bankruptcy lawyers can represent in brain teasing and enter-taining fact scenarios.

Jan Hamilton, Chapter 13 Trustee for Topeka, Kansas, gave interestinginsight into his role in the Supreme Court case Lanning v. Hamilton inter-preting BAPCPA’s new “means test” provision, why and how he chose whichcase to appeal, and the bumpy road through the appellate courts that endedin the Court’s 8-1 decision handed down in June 2010.

Hannah Kapasi, Program Attorney for the State Bar’s Texas LawyersCare initiative, rounded out the morning with helpful information about theincreasing need for pro bono legal services due to the declining funding fromIOLTA accounts because of historically low interest rates, and how to getinvolved with legal services for the poor including joining the State Bar’s ProBono College and the Pro Bono Mentor Program, which is designed to assistlawyers with cases that are outside their range of expertise.

After lunch, the conference featured a presentation by the HonorableKaren Kennedy Brown, bankruptcy judge for the Southern District ofTexas, and Hugh M. Ray, III who offered insights into judicial ethics,including the laws and rules for disqualification of a judge. The HonorableRussell F. Nelms and his law clerk, Laurie Babich then provided a veryhumorous and entertaining presentation on technology in the courtroom,including the use of digital projectors.

The afternoon breakout sessions covered other hot topics in consumerand business bankruptcy. For consumer practitioners, Elizabeth J. Marshall(Ford Motor Credit Company) and Lawrence J. Fallon (Ally Financial,Inc.) discussed current developments with national car lenders; NatashaVarnovitsky from the Department of Education discussed student loans inbankruptcy; and Eduardo V. Rodriguez, Areya Holder, and William Richard(“Dick”) Davis, Jr., provided a primer on chapter 11 for individual debtors.For business practitioners, William L. Wallander, Paul S. Maco and BobMedlin discussed municipal bankruptcies and the potential for future chapter 9

Judge Schmidt and Laurie Babich

Honorable Carl E. Stewart

Josh Searcy, Jermaine Watson, Eric Van Horn, Professor Linda S. Eads, Jessica Hanzlik, and

Venessa Gonzalez



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filings; the Honorable Christopher H. Mott(bankruptcy judge for the Western District ofTexas), Professor Nancy B. Rapoport (Universityof Law Vegas Boyd School of Law), Kemp Sawers,and Warren H. Smith discussed red flags for feeexaminers, and how to address and/or preventthem from being raised; and the HonorableRobert R. Summerhays, bankruptcy judge forthe Western District of Louisiana, discussed post-confirmation jurisdiction, including the 5thCircuit’s United Operating opinion, and otherissues relating to litigation trusts in chapter 11.

Karen McCullough, a workplace and busi-ness trend consultant and nationally renownedspeaker, rounded out Thursday’s presentationswith a round table discussion of issues forwomen professionals.

Friday morning started with judges andlawyers breaking out by district to discussimportant local issues including potentialchanges to local rules.

Karen McCullough then provided an ener-getic and entertaining presentation filled withmusic and video clips about generational differ-ences in the workplace that included significantaudience participation.

The Honorable Marvin Isgur, bankruptcyjudge for the Southern District of Texas(Houston) and Leslie Masterson (law clerk tothe Honorable Brenda T. Rhoades) discussedissues in individual Chapter 11 plans.

Constitutional law expert and professorErwin Chemerinsky, University of California –Irvine School of Law, appeared by video confer-ence and gave a thorough review and analysis ofrecent Supreme Court decisions of interest tobankruptcy practitioners.

Finally, Judges Harlin D. Hale (Dallas),Judge Stacey G. Jernigan (Dallas), JudgeRichard Schmidt (Corpus Christi), Judge AlanS. Trust (Long Island), Michelle A. Mendezand J. Patrick Kelly discussed how the benchand the bar can improve relations which includ-ed a lively discussion and audience participationabout why significant chapter 11 bankruptcycases involving Texas based companies are filedelsewhere.

Josh Searcy




Annual Meeting – Judge Schmidt, Byrnie Bass, Judge Hale, Josh Searcy, Elizabeth Guffy, andMichelle Mendez

Judge Mott, Professor NancyRapoport, Kemp Sawers, and

Warren Smith

Leslie Masterson and Judge Isgur

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EVENTS

The special events began Wednesday withthe golf tournament, spa treatments and openingnight reception, followed by Thursday morning’sfun run. After the first day’s presentations,attendees enjoyed a reception honoring theSection’s financial professional members. Manyattendees enjoyed the disco themed eveningby dressing in 70’s attire. The highlight of theevening was the gracious participation bySection members and even some of our judgesin the “Y.M.C.A.” After dinner, all attendeeswere invited to an evening party hosted by theYoung Lawyers Committee where young andexperienced practitioners mingled into thenight

.2The special events concluded on Friday

morning with a twenty mile bicycle ridethrough the hill country led by Judge Schmidt.

2 Thanks to Deborah B. Langehennig, Chapter 13 Trustee(Austin) and Layla Milligan (Austin) for organizing this fun event.

Thursday Night Fever – Disco Dinner and Dancing

Judges King and Schmidt

Young Lawyer CommitteeAfter Dinner Reception


Thursday Night Fever – Disco Dinnerand Dancing – Debbie Langehennigand Jan Hamilton

Garden Party – Outdoor Reception

Chris Adams, Steve Lemmon, Layla Milligan, Greg Milligan, and Tim Million

Members Enjoying the Hospitality Suite

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BANKRUPTCY BILL CARTOON — SEPTEMBER 2011 EDITION

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Article III Bars Anna Nicole Smith’s Core Counterclaim and Shakes up the Bankruptcy World

By: Austen Swaim, JD/MBA Candidate SMU Dedman School of Law – May 2012

Bankruptcy Extern for the Honorable Harlin D. Hale – Spring 2011

The Anna Nicole Smith (“Vickie”) saga came to an end on June 23, 2011. On that day, the United States Supreme Courtrendered a decision that will likely have a large impact on many future Bankruptcy proceedings. The question posed to theCourt was (1) whether the Bankruptcy Court had the statutory authority under 28 U.S.C. § 157(b) to issue a final judgmenton Vickie’s counterclaim; and (2) if so, whether conferring that authority on the Bankruptcy Court is constitutional. In a 5-4opinion delivered by Chief Justice Roberts, the majority held that although section 157(b)(5) did indeed allow the non-ArticleIII court to enter a final judgment on Vickie’s tortious interference counterclaim, the Bankruptcy Court lacked the constitu-tional authority to do so.

The Background

When J. Howard Marshall died, he left Vickie out of his will which set up a fierce dispute between the former stripper andJ. Howard’s son, Pierce Marshall (“Pierce”). Just before the Oil tycoon’s death in 1995, Vickie realized she was not party to thewill and sued Pierce in Texas probate court for interfering in the inter vivos gift she expected from J. Howard. At about the sametime, penniless, she sought bankruptcy protection in California’s Central District; which is where our saga begins. In Vickie’sbankruptcy proceedings, Pierce ultimately filed a nondischargeablity action and a proof of claim premised upon Vickie’s allegeddefamation of Pierce. Vickie filed a counterclaim against Pierce in the adversary for tortious interference with the J. HowardMarshall testament. Not only did the court award Vickie summary judgment against Pierce in the defamation claim, but theBankruptcy Court also awarded Vickie compensatory and punitive damages totaling more than $425 million dollars on hercounterclaim. A number of appeals followed and after a trip to the Ninth Circuit and the Supreme Court and a subsequentremand to the Ninth Circuit, the case ended up back in the Supreme Court for final adjudication and a decision that couldprofoundly affect bankruptcy, district, and state courts.

The Statute from a Plain Text Lens

Under the Code, a bankruptcy court may enter a final judgment in any core proceeding “arising under Title 11, or arisingin a case under Title 11.” 11 U.S.C. § 157(b)(1). The statute sets forth a non-exhaustive list of sixteen matters that constitutecore proceedings; one of which is counterclaims by the estate against persons filing claims against the estate. 11 U.S.C. §157(b)(2)(C). If a bankruptcy judge deems a proceeding to be non-core, the judge may not enter final judgment, but rather,“submit proposed findings of fact and conclusions of law to the District Court.” Id.

With this language in mind the Supreme Court held, contrary to Pierce’s arguments, that the statute indeed covered thecounterclaim. Pierce argued that there was a category of cases that were core but did not arise in or under a Title 11 case. This,the majority quickly dismissed. The Court cited the fact that if this were so it would leave serious doubt as to how to disposeof a core proceeding that did not arise in or under a Title 11 case. If there was any doubt of the Court’s resoluteness in this matter, it was removed by Justice Roberts’ statement: that an “oxymoron is not a typical feature of the congressional drafting.”Opinion at 10.

Alternatively, Pierce argued that the section 157(b)(5) requirement, that personal injury and wrongful death tort suits bedecided in district courts, was jurisdictional. And therefore, the Bankruptcy Court’s order could not stand. Again, the Courtwas not swayed. The Court pointed out that the statute was not framed in a jurisdictional manner and the courts are loathe toimpose a jurisdictional bar when there is none to begin with. In affirming the non-jurisdictional nature of the statute, the Courtemphasized that the text bore no reference to district court or bankruptcy court jurisdiction, but rather, addressed only wherepersonal injury tort claims must be tried. 11 U.S.C. § 157(b)(5). This means that a claimant can consent to having his caseheard in either venue but by doing so may subject himself to waiver in district court. Justice Roberts and the majority empha-sized that despite Pierce’s argument to the contrary, he had consented to the Bankruptcy Court’s hearing of his claim. Once helost, Pierce had no right to complain when the case did not produce a favorable result.


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The Constitutional Door Slams in Vickie’s Face

Although the majority found that the statute covered the counterclaim, the slim majority held that it was unconstitutionalfor a non-Article III court to adjudicate the claim. The Court pointed out the need to reinforce the integrity of the separationof powers, and more specifically that of the judicial branch, by ensuring that such cases are decided by judges that enjoy theprotections of salary and lifetime tenure.

The Court addressed Vickie’s public right argument at great detail. The Justices wrote that although the plurality inNorthern Pipeline acknowledged a public right wherein Congress could constitutionally refer a claim to a non-Article III decisionmaker, such as a Federal Agency, the case at bar did not constitute such a case. In addressing the public right question, the Courtnoted that Vickie’s claim did not stem from a federally regulated statutory scheme nor did it even arise out of a federal cause ofaction. Instead, it concerned a state common law tort cause of action and resulted in the entry of a binding judgment.

In the majority’s view, this result implied that Pierce “did not truly consent to resolution of Vickie’s claim in the bankruptcycourt proceedings,” but rather, “had nowhere else to go if he wished to recover from Vickie’s estate.” Opinion at 27. Moreover,Justice Roberts noted that part of the rationale behind utilizing a public right is to quickly and efficiently dispose of a small areaof law in which an agency might be privy to a particularized subject matter or competence – this, again, was not such a case.Indeed, the Article III courts are experts in the field of common law causes of action, not any agency, and it was thus from astructural and purpose-driven analysis that the Court ruled the non-Article III court’s action unconstitutional.

The Court majority was particularly concerned that the Bankruptcy Court wielded the full “judicial power of the UnitedStates” by entering binding orders and making findings of fact. Orders that the district courts can only review under “limitedappellate standards.” Since the bankruptcy courts are adjuncts of no other court it is of great concern that their power be curbedaccordingly. Opinion at 21. The Court opined that the power granted bankruptcy courts to fully adjudicate such core proceedings is simply too similar to the powers of the bankruptcy courts under the 1978 Act, which the courts curbed afterNorthern Pipeline.

Is There a Nexus?

In adjudicating the constitutionality of a non-Article III court entering final judgment in the proceeding, the majority alsolooked generally to the nature of Pierce’s initial claim, Vickie’s counterclaim, and the nexus between the two causes of action.The Court found that there was little overlap, stating that “there was never any reason to believe that the process of adjudicatingPierce’s proof of claim would necessarily resolve Vickie’s counterclaim.” Opinion at 32. More specifically, when the Court distinguished Katchen and Langenkamp from the case at bar, Justice Roberts emphasized that the Katchen Court found juris-diction in bankruptcy court proper when the trustee’s voidable preference claim against the creditor was essential in decidingwhether to allow the creditor’s claim.

However, even Katchen did not go so far as to express an opinion as to the bankruptcy judge’s ability to exercise “summaryjurisdiction to adjudicate a demand by the trustee for affirmative relief.” Opinion at 31. The Bankruptcy Court hearing Vickie’scounterclaim, on the other hand, did make “factual and legal determinations that were not ‘disposed of in passing on objections’to Pierce’s proof of claim.” Opinion at 32. To drive its point home, the Court emphasized that the underlying distinctionbetween Katchen and Langenkamp and the instant case was that in the former the trustees availed themselves of bankruptcy lawin pursuing their claims, whereas in the latter the claim was of was a state law tort variety.

Policy Concerns Don’t Concern this Decision

Finally, in response to the concern that this holding would create a profound change in the district court caseload, themajority submitted that constitutional concerns should always trump judicial efficiency and indeed there was a real threat toArticle III in the case at bar. Justice Roberts artfully stated that “a statute may no more lawfully chip away at the authority ofthe Judicial Branch than it may eliminate it entirely.” Opinion at 37.


Continued on page <None>.

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Scalia Concurs and Critiques

Justice Scalia concurred with the majority but pointed out that the holding didn’t go far enough, stating: “I count at leastseven different reasons given in the Court’s opinion for concluding that an Article III judge was required to adjudicate thisclaim.” Concurrence at 1. Scalia was in fact troubled by the majority’s reasoning, particularly that “the tests suggested by [theCourt’s] jurisprudence . . . [has] nothing to do with the test or tradition of Article III.” Concurrence at 2. Justice Scalia, however,affirmed that the Court’s result was correct “not because of some intuitive balancing of benefits and harms” but rather becauseArticle III judges must adjudicate all federal causes of action under the text of Article III. Scalia did, however, leave open thepossibility that a non-Article III judge could “process claims against the bankruptcy estate” but since the topic was not briefedbefore the Court he declined to render any opinion. Concurrence at 2.

The Dissent Takes a Pragmatic Approach

Four justices dissented. Although they agreed with the majority that section 157(b)(2)(C) permitted the bankruptcy courtto enter a final judgment on the counterclaim, the dissent would have gone further, holding that the statute is constitutionaland does not violate Article III. The four justices took a more pragmatic and functional approach in addressing the proper disposition of Vickie’s counterclaim. In doing so, they pointed to Thomas and Schor where the Court simply asked itself if thequestion posed to the Justices resulted in a “genuine and serious threat” where one part of the government sought to aggrandizeits authority over another.” Dissent at 6.

Led by Justice Breyer, the dissenting justices attempted to undermine the majority’s rationale by pointing out a misplacedreliance on certain precedent. For example, considering the majority’s reliance upon Murray’s Lessee, the minority stated that“later courts have seized on that distinction [between public and private rights] when upholding non-Article III adjudication,not when striking it down.” Dissent at 3. Additionally, for all the importance the majority placed on Northern Pipeline and thesubsequent dismantling of the Bankruptcy Act of 1978, there was no majority opinion in that case (“The Majority in my viewoveremphasizes the precedential effect of the plurality opinion in Northern Pipeline.”). Dissent at 5. Conversely, the dissent wasdisheartened at the lack of treatment and analysis paid to the Crowell holding (“Were Crowell’s holding as narrow as theMajority suggests, one could question the validity of Congress’ delegation of authority to adjudicated disputes among privateparties to other agencies as the National Labor Relations Board” and other similar agencies). Dissent at 5.

The dissenters were not comforted by the majority’s prediction that the Stern v. Marshall holding “[did] not change all thatmuch.” Dissent at 16. To support this contention, the dissent submitted an example of a common landlord-tenant dispute relatedto unpaid rent and a related counterclaim that would now have to be decided not by the bankruptcy judge, but by a districtjudge, thereby complicating the proceedings. Such disputes happen quite frequently and, in the minority’s view such counter-claims should also be decided by bankruptcy courts since “compulsory counterclaims involve the same factual disputes as theclaims that may be finally adjudicated by the bankruptcy courts.” Dissent at 17. In the minority’s view, no constitutional assaultexists in this common landlord-tenant scenario and to decide otherwise would lead to increased costs, inefficiencies, and diffi-culty for the courts and those embroiled in the proceedings.

Conclusion

Like many Supreme Court decisions, the impact of this holding awaits interpretation in the lower courts. Undoubtedly, thebankruptcy courts’ ability to adjudicate counterclaims (or at least enter final judgments) like the one asserted by Vickie is over.However, given the sweeping language of the majority opinion and the concern over a violation of Article III, one might arguethat other issues regularly considered by the bankruptcy courts may also now be handed over to the district or state courts forfinal resolution.



13


Judge Jernigan Honored by DAYBLBy: Russell Perry,Deloitte Financial Advisory Services LLP ([email protected]) and Frances Smith, Shackelford Melton & McKinley, LLP ([email protected])

The Dallas Association of Young Bankruptcy Lawyers (DABYL) hosted a reception to honor Judge Stacey G. C. Jernigan’sfifth year on the bench at the Adolphus Hotel in downtown Dallas on July 21. Over 85 attorneys and financial professionals,including Judge Jernigan’s staff, took the opportunity to show their appreciation for her dedicated service. The DAYBL Boardpresented Judge Jernigan with an engraved gavel, which was followed by special remarks from Judge Harlin D. Hale. Judge Halecommented that although he and Judge Jernigan competed for judgeships, he was happy she was appointed (but joked “onlyafter me”) and that he has enjoyed seeing her become the type of judge he knew she could be. Following Judge Hale's remarks,Judge Jernigan introduced her dedicated staff and thanked them for their service. She commented on how proud she was of theyoung lawyers who formed DAYBL and those who continued to serve to keep the organization active. She also noted how muchshe appreciated having a forum to get to know the young lawyers who appear before her and wished a similar organization hadbeen formed when she was a young practitioner.

Judge Hale providing remarks at Judge Jernigan’s reception

Judge Jernigan

14


Debtor’s Post-Confirmation Standing to Pursue Estate’s Claims and Causes of Action

By: Sara Wahl, Curran Tomko Tarski LLP (hhtp://linkedin.com/in/sarawahl)

The Fifth Circuit recently revisited its 2008 United Operating opinion regarding the scope of a post-confirmation debtor’sstanding to pursue avoidance actions. In Spicer v. Laguna Madre Oil, L.L.C., et al. (In re Texas Wyoming Drilling, Inc.) No. 10-10717,slip op. (5th Cir. July 21, 2011), the Fifth Circuit affirmed the bankruptcy court’s denial of a motion for summary judgment basedon the debtor’s alleged lack of standing, as well as other grounds.

The case involved a corporate debtor (Texas Wyoming Drilling, Inc.) who had, post-confirmation, sued thirty-two of itsformer shareholders for fraudulent transfers under the Bankruptcy Code and state law. The debtor alleged that certain pre-petitiondividend payments to the former shareholders, totaling millions of dollars, were made while the debtor was insolvent. Severalof the former shareholder defendants (the “Appellants”) filed a motion for summary judgment, arguing that the debtor had nostanding to pursue the fraudulent transfer claims because such claims were not adequately preserved in the plan to satisfyBankruptcy Code section 1123(b)(3). In the alternative, the Appellants argued that the fraudulent transfer claims were barredby res judicata and judicial estoppel. Adding a wrinkle to the process, the day before the hearing on the Appellants’ motion forsummary judgment, the bankruptcy court sua sponte converted the debtor’s Chapter 11 case to Chapter 7 because the debtorhad materially defaulted on its obligations under the plan. The Chapter 7 bankruptcy trustee automatically succeeded thedebtor as the plaintiff in the fraudulent transfer cases. The bankruptcy court denied the motion for summary judgment, “holdingthat the defenses were meritless, but that, even if any of them had merit, the court’s conversion of the case meant that theChapter 7 bankruptcy trustee could pursue the claims even though the Chapter 11 debtor could not.” Spicer v. Laguna MadreOil, L.L.C. at 3. Thereafter, the Appellants appealed the bankruptcy court’s order to the Fifth Circuit.

The Fifth Circuit began its analysis by reviewing its own words in the United Operating case, stating, “after confirmation ofa plan, the ability of the debtor to enforce a claim once held by the estate is limited to that which has been retained in the bank-ruptcy plan.” Laguna Madre Oil, L.L.C. at 4 (citing Dynasty Oil & Gas, L.L.C. v. Citizens Bank (In re United Operating, L.L.C.)540 F.3d 351, 355 (5th Cir. 2008)). The Fifth Circuit continued, “[f ]or a debtor to preserve a claim, the plan must expresslyretain the right to pursue such actions. The reservation must be specific and unequivocal.” Id. The Fifth Circuit also reiteratedthe relevant portion of Bankruptcy Code section 1123(b)(3), which states that a plan may provide for the retention and enforce-ment of any claim by the debtor.

Before applying the law to the uncontroverted facts, the Fifth Circuit addressed the Appellants’ contention that the disclosurestatement should play no part in the court’s determination of whether the debtor or trustee has standing to pursue the fraudulenttransfer claims. The Fifth Circuit stated that no other court of appeals has addressed whether a disclosure statement may be consulted for purposes of standing. The Fifth Circuit noted, however, that other courts routinely consult disclosure statementsin deciding whether res judicata and judicial estoppel apply. The Fifth Circuit noted that several lower courts have held thatboth the plan and the disclosure statement should be considered in determining standing, but acknowledged that at least onelower court has held that only the plan should be considered in determining questions of standing under Bankruptcy Code section 1123(b)(3). Reflecting on the purpose of the disclosure statement – to provide notice to creditors and inform their voteson the plan – and the purpose of the rule of express retention in United Operating – “to put creditors on notice of any claim[the debtor] wishes to pursue after confirmation and enable creditors to determine whether a proposed plan resolves matterssatisfactorily before they vote to approve it” – the Fifth Circuit decided that both purposes were consistent, and, since othercourts routinely consider the disclosure statement to determine whether a claim is preserved, the Fifth Circuit held that courtsmay consult the disclosure statement as well as the plan to determine whether a post-confirmation debtor has standing.

Having determined that it should review both the plan and the disclosure statement in making its determination, the FifthCircuit found that both the plan and disclosure statement included express language retaining the fraudulent transfer claimsagainst the Appellants and other pre-petition shareholders. The disclosure statement even included a chart outlining variousclaims and causes of actions that the debtor might pursue, listing various pre-petition shareholders as potential defendants whomight be sued for fraudulent transfer and recovery of dividends valued at approximately $4 million. Therefore, the Fifth Circuitheld that the debtor specifically and unequivocally retained those claims under United Operating.


15


The Fifth Circuit then turned its attention to the Appellants’ res judicata and judicial estoppel arguments. The Appellantshad argued that the debtor or trustee was judicially estopped from pursuing the fraudulent transfer cases because the debtor hadfailed to disclose them on its schedules. The Fifth Circuit stated that the Appellants failed to prove even the first of the threerequirements for judicial estoppel – that the debtor and trustee had taken clearly inconsistent positions. The Fifth Circuit statedthat because the plan and disclosure statement clearly retained the same claims that the trustee is now pursuing, there is noinconsistency in its position. Accordingly, the trustee should not be judicially estopped from pursuing the fraudulent transfer claims.

Finally, the Fifth Circuit addressed res judicata. The Fifth Circuit outlined the four requirements of res judicata and focusedon the third requirement: there must have been a final judgment on the merits in the previous decision. The Fifth Circuit statedthat the Appellants did not point to a prior final judgment on the merits of the fraudulent transfer actions, and stated that resjudicata does not apply where a claim is expressly reserved by the litigant in the earlier bankruptcy proceeding. The Fifth Circuitquoted the bankruptcy court with approval, stating, “[a]s the bankruptcy court held, ‘where, as here, an intent to pursue a claimpost-confirmation has been manifested in both the confirmed plan and its associated disclosure statement, the res judicata effectof confirmation would not . . . preclude pursuit of those claims.’” Spicer v. Laguna Madre Oil, L.L.C. at 10-11. The Fifth Circuitthen stated that, because the confirmation order preserved the fraudulent transfer actions, they are not barred by res judicata.


United Operating Cartoon for June 2010Editor’s note: “The cartoon below was originally published in theJune 2010 newsletter and is reprinted here to accompany the precedingcase summary involving the Fifth Circuit's analysis of its UnitedOperating decision.”

16

Kim Lubke (the “Debtor”), formerly an Arlington, Texas firefighter, obtained a verdict against the City of Arlington (the“City”), for approximately $1 million pursuant to the Family Medical Leave Act (“FMLA”). Lubke v. City of Arlington, 455 F.3d489 (5th Cir. 2006). During the City’s appeal, the Debtor and his wife filed a Chapter 7 bankruptcy case; however, they omittedthe judgment from his bankruptcy filings. The Debtor then obtained a discharge of approximately $300,000 in debt, while thecreditors were led to believe his was a “no asset” case.

Upon notice of such judgment, Diane Reed (the “Trustee”) reopened the Debtor’s bankruptcy case and substituted asPlaintiff. The U.S. District Court concluded that damages for violation of the FMLA totaled $357,000, comprised of approx-imately $203,000 in lost wages and benefits (including offsets) and approximately $154,000 in liquidated damages. The Cityargued that the doctrine of judicial estoppel governed, and thus both the Debtor and the Trustee were barred from recovery.The court found that although all elements of judicial estoppel were satisfied regarding the Debtor, they were not satisfiedregarding the Trustee. Subsequently, the court fashioned a rather unusual and unique remedy. It was ordered that the City paythe entire FMLA judgment to the Trustee. However, because of the concern that the Debtor would benefit from any potentialremaining funds not distributed to creditors, the court ordered that any remaining funds instead be returned to the City.

The City appealed and the Fifth Circuit reversed stating that, because of the Debtor’s inconsistent positions, “equity doesnot support further continuation of this litigation” and that both the Debtor and the Trustee must be judicially estopped frompursuing it. Furthermore, the Fifth Circuit concluded that not to uphold judicial estoppel in this instance would encouragedebtors only to disclose personal assets if they are caught concealing them.

On February 22, 2011, a majority of Fifth Circuit judges in regular active service voted in favor of a rehearing en banc. Theprimary question raised in the appeal was whether judicial estoppel should prevent not only the Debtor but also the Trusteefrom collecting the judgment against the City. Such rehearing took place on May 23, 2011.

At the rehearing en banc, the City’s attorney, Michael A. McConnell of Fort Worth, urged that the doctrine of judicial estoppelis to be used when no other sanction is adequate. He contended that in this case the only sanction that will sufficiently preventthe Debtor from benefiting from his wrongdoing is judicial estoppel. Furthermore, he argued that if the District Court’s rulingis upheld the Debtor would indirectly benefit from the payments on his non-dischargeable debt.

Counsel for the Trustee, Todd Allen Hoodenpyle of Dallas, as well as counsel for the creditor, Stephen Sather, argued thatthe District Court’s ruling, if enforced, does not benefit the Debtor. They argued that the benefited parties would be the creditors.Furthermore, the purpose of judicial estoppel is to punish a wrongdoer, not innocent parties. Hoodenpyle and Sather concludedby stating that if judicial estoppel is granted innocent creditors will be harmed and the City will benefit by an enormous windfall.

This case has been the subject of much discussion and could have significant impact on not only bankruptcy cases, but anylitigation in which a Debtor is a party. The en banc decision of the Fifth Circuit is expected in a few months.

Editor’s Note: Subsequent to the submission of this article, the Fifth Circuit published a decision in Reed v. City of Arlington.A review of that decision will be forthcoming in a future edition of the newsletter.


En Banc Decision Regarding Doctrine of Judicial EstoppelReed v. City of Arlington, 634 F.3d 769 (5th Cir. 2011)

By: Michael Tobolowsky, University of San Diego School of Law ([email protected])Extern to Judge Harlin D. Hale

17


The Eighth Annual International Bankruptcy Seminar was held this March inDublin, Ireland. Prior seminars have been in London, Paris, Barcelona, Italy (Rome andFlorence), Athens, Amsterdam, and Munich. Bryan and Megan Fears, the trip leaders,worked tirelessly to make the seminar and trip a success. Eighty-five people attended,including featured guests: Judge Ron and Cindy King and Judge Karen Brown.

The seminar featured Kieran Wallace, the Irish equivalent of a trustee, speakingon the insolvency system in Ireland. Hugh Cooney spoke on Ireland’s debt crises andIreland’s plans to turn things around. Mr. Cooney is also an envoy who met withPresident Obama on these matters. The entertaining Hal Lusky spoke about the useof office technology. By using video conferencing technology, you can practice lawwearing pajamas on bottom and a coat and tie on top—a technique Mr. Lusky happily demonstrated. Another high point wasa freewheeling question and answer session in the Judges Panel (not held by video conference). Additionally Pam Stewart, JanetNorthrup, June Mann, Mitchell Ayer, Dana Ehrlich, Arnold Cavasos, and Mary Vance spoke on a range of topics from venueand mortgage scams to mental health issues and new IRS positions.

The conference proved a great networking event as it brought together practitioners and theirspouses from all over Texas; including attorneys from large and small firms; business and consumerpractices; trustees, judges, and even a former U.S. Trustee.

Although there were three days of classes, the attendees were able to take tours when not inclass. Of these, a highlight was the all-day tour to the West Coast of Ireland where participants vis-ited the towering Cliffs of Moher and the City of Galway. Lunch that day was at the Kings HeadPub, a place established in 1649 under somewhat grim terms. The story goes that when KingCharles was ordered beheaded, no one volunteered for the job. In fact, the regular executionersrefused to touch the head of the monarch. So, the call went out for executioners and finally a fel-low from Galway said, “No problem, I’ll chop it off!” Following the completion of his task, heused the executioner’s reward to buy the Pub.

Other notable tours included a trip to the Wicklow Hills with a visit to the GlendaloughMonastic Site (an ancient monastery founded in the sixth century that survived for 600 years): a visit to the beautiful PowerscourtGardens: and a tour of the city, which included a viewing of the Book of Kells, a famous hand-drawn illuminated manuscript ofthe Four Gospels created by Celtic Monks dating from the year 800. Additionally, attendees toured the Jameson Distillery and theGuinness Storehouse, with tastings at the end of the tours (the Jameson beat out both Jack Daniels andJohnny Walker). Finally, there was a literary pub crawl which included actors performing scenes fromJames Joyce, Samuel Beckett, Oscar Wilde, and others at different sites in Dublin.

By all accounts, this trip was a resounding success. The Bankruptcy Law Section does not usethis seminar as a fundraiser. It is a benefit of Section membership. The price of attendance coverstravel costs, but does not leave a profit for the Section. In an effort to minimize costs, speakers areasked to—and do—cover their own travel costs and are not otherwise compensated. The Sectionwishes to convey its gratitude to the speakers for this, and for the substantial time and effort theyput into their papers and presentations. The Section also wants to extend a special thanks to JulianneParker, the founding force behind this annual pilgrimage. Stay tuned for details about next year’strip—the destination of which, has yet to be announced!

The Eighth International BankruptcySeminar – Dublin

By: Mitchell Ayer, Thompson & Knight LLP ([email protected]) and Tim Webb, Law Office of Tim Webb ([email protected])

Cliffs of MoherMichelle Musal, Rick Musal and Megan Fears

GalwayFrom left to right are: Betty Musal, Gail LeVine,Bryan Fears, Megan Fears, June Mann, Rick Musal,Jan Silver, Jaime Silver and Michelle Musal

Tim Webb and Kathy andMitch Ayer explore Irish culture

Jackie and Christian Sternatat the Guinness Factory

18


Have money with Schwab? Well, exemptions make investments look easy. In June of last year, the Supreme Court of theUnited States decided Schwab v. Reilly, 130 S. Ct. 2652 (2010). Certain language in the opinion created a stir among courtsand bankruptcy bars around the country. With varying results, courts have issued opinions interpreting Schwab, but it is tooearly to identify a consensus as to the case’s effect. So far in Texas, there is notable divergence.

Factual recap

At issue in Schwab was whether, and to what extent, a party in interest must object to a debtor’s exemption claims.1When

scheduling her assets, the debtor in that case, Nadejda Reilly, listed certain cooking equipment as having an estimated marketvalue of $10,718.

2On Schedule C (the place where debtors indicate their intended exemptions), Reilly claimed as exempt the

exact amount she valued the equipment—$10,718.3

Even though the Bankruptcy Rules provide that interested parties must object to a debtor’s claim of exemptions within thir-ty days of the meeting of creditors, in Schwab, thirty days came and went and no one objected to Reilly’s plan to exempt thecooking equipment.

4Nevertheless, at some point after the objection period concluded the Chapter 7 trustee, William Schwab,

moved for permission from the bankruptcy court to sell the equipment, which he believed was worth $17,200.5The trustee

proposed to sell the equipment, pay the debtor the value of her exempt interest ($10,718) in cash, and retain the remainder forthe benefit of the creditors.

6

Reilly contested the motion and asserted that by claiming the entire estimated value of the equipment as exempt (i.e., shevalued it at $10,718 and exempted $10,718), she “‘indicate[d] the intent’ to exempt the equipment’s full value.”

7This, even

though the “true value” deviated from her estimate.8Reilly contended that by placing the trustee on notice that she planned to

keep the asset itself, the trustee had the onus of objecting within thirty days.9And his failure to object resulted in the entire asset

passing to the debtor as exempt.10Schwab, on the other hand, argued he had no duty or basis to object to Reilly’s exemptions

given the fact that they were valid exemptions for an amount within the statutory limit.11

The bankruptcy court, district court, and Third Circuit Court of Appeals agreed with Reilly’s position, but the SupremeCourt reversed.

12Justice Thomas, writing for the majority, took issue with Reilly’s contention that the trustee should have to

“infer” from the schedules that the debtor intended to exempt the entire asset from the fact that the amount claimed as exemptmatched the market value listed by the debtor.

13Stepping through several statutory provisions, the Court concluded that for

most federal exemptions the property a debtor may claim as exempt is the debtor’s interest (up to a specified dollar amount) inthe asset, not the asset itself.

14

Analytical Recap

The Court explained a trustee’s assessment of exemptions should turn on “three and only three” factors taken from the debtor’sschedules.

15They are: (1) the asset description, (2) the statutory provision providing the exemption, and (3) the amount claimed

as exempt.16This, according to the Court, does not render the debtor’s estimation of an asset’s market value totally irrelevant

because that value may aid a trustee in assessing whether excess value in the asset exists; however, it plays no role in a trustee’sevaluation of the propriety of the exemption claim.

17

Reilly argued the Court’s prior ruling in Taylor v. Freeland & Kronz, 503 U.S. 638 (1992), stood for the proposition that unlessthe trustee objected within thirty days, the asset claimed as exempt (even if improperly so) passed to the debtor. But the Courtclarified its position in Taylor and distinguished it from the facts in Schwab.

18The debtor in Taylor listed the value of a pending

lawsuit as “$ unknown.”19The omission of a value within the statutory limits (one of the three requisite elements) rendered the

Taylor debtor’s exemption claim facially invalid.20Despite the obviously objectionable nature of the debtor’s exemption claim,

the trustee in Taylor did not object.21Without an objection to an improper exemption, the entire asset passed to the debtor

following the expiration of thirty days.22

Texas Bankruptcy Courts Divided on Procedure for Objecting to Exemptions

By: Rachel Kingrey, Gardere Wynne Sewell LLP, (former law clerk to the Honorable Judge Jones)


19


But the Court explained that unlike in Taylor, there was nothing for Schwab to object to on the face of Reilly’s exemptionclaim.

23A trustee surrenders no right of the estate to retain the excess value in an asset when he does not object to a facially valid

exemption claim.24This holding does not disrupt the rule in Taylor because if a trustee fails to object within thirty days to an

invalid exemption—for example, one that lists a value outside of the statutory limit—the trustee is still prohibited from realizingany excess value in the asset for the estate.

The Procedure

Finally, with this clarification articulated, the Court attempted to address the procedural mechanism for objecting to claims. It said:

Where, as here, it is important to the debtor to exempt the full market value of the asset or the asset itself, our decisionwill encourage the debtor to declare the value of her claimed exemption in a manner that makes the scope of the exemptionclear, for example, by listing the exempt value as “full fair market value (FMV)” or “100% of FMV.” Such a declarationwill encourage the trustee to object promptly to the exemption if he wishes to challenge it and preserve for the estateany value in the asset beyond relevant statutory limits. If the trustee fails to object, or if the trustee objects and theobjection is overruled, the debtor will be entitled to exclude the full value of the asset. If the trustee objects and theobjection is sustained, the debtor will be required either to forfeit the portion of the exemption that exceeds the statutoryallowance, or to revise other exemptions or arrangements with her creditors to permit the exemption.

25

The Problem

This paragraph has been read to encourage debtors to write “100% FMV” on their Schedules C in order to exempt an asset“in-kind” when the exemption statute provides only for the exemption of an “interest” in the specified asset. Obviously, the abilityof a debtor to receive an entire asset as opposed to a cash payment is of terrific import. Accordingly, Thomas’s comments aboutnotating “FMV” have garnered much attention. Debtors around the state are testing their ability to exempt whole assets byadding the phrase “100% FMV” to their exemption claims. Trustees, likewise, are lodging objections on the theory that debtorsare only ever entitled to keep his or her interest in the property. The important questions for our bankruptcy courts in light ofthis issue are first, what is the procedure for ruling on these claims and objections? And, perhaps more important, where doestitle to the asset reside throughout the process?

Two Texas Approaches

1. MooreThe first Texas opinion interpreting Schwab came out of the Fort Worth Division of the Northern District of Texas. In In

re Moore, 442 B.R. 865 (Bankr. N.D. Tex. 2010) (Lynn, J.) the court reviewed the exemptions filed by debtors in two cases.26

James and Dorothy Moore claimed the federal exemptions while Reed Wilson claimed Texas exemptions.27All of the debtors

listed “100% of FMV” next to each of their exemption claims.28Within thirty days the trustee in each case objected, claiming

the debtors sought to exempt more than they were statutorily entitled to.29

The court disagreed. First, it held the Schwab analysis inapplicable in cases where Texas exemptions are claimed becauseTexas exemptions exempt property in-kind, not “interest” in a specified asset.

30Second, it found the debtors’ exemption claims

were anything but improper as they were merely following the guidance of the Supreme Court. Finally, the court said the procedure was working just as expected.

31

Specifically, the debtors put the trustees on notice of their intent to remove the full asset from the estate by marking “100%FMV” on their schedules. The trustees objected. As such, the “[t]rustees are entitled to evidentiary hearings . . . respecting thevalue of the Debtors’ exemptions.”

32“In any such hearing, the debtor will have the burden of going forward and must show a

plausible basis for the claim that ‘100% of FMV’ of an asset falls within the statutory limit on the amount that may be exempted.Once the debtor has satisfied that burden, the party opposing the exemption will have . . . the burden of proving that, in fact,the claimed exemption exceeds the statutory limit.”

33Finally, the court held that following the hearing, “[i]f the objection is

overruled, the asset claimed will no longer be part of the estate.”34If the objection is sustained, the debtor must forfeit the

portion of the exemption that exceeds the statutory allowance, or revise his or her exemptions.35



20


2. SalazarA second approach was outlined in In re Salazar, No. 10-50360, 2011 WL 1104109 (Bankr. N.D. Tex. Mar. 23, 2011)

(Jones, J.). In Salazar, the Court considered objections to exemptions made by trustees in thirteen bankruptcy cases (eleven ofthe cases were filed under Chapter 13, two under Chapter 7).

36In each case, the debtors listed “100% FMV” on their Schedules C.

37

Two of the cases claimed exemptions under Texas law, the rest used the federal exemptions.38

In accord with Moore, the court explained that by claiming “100% of FMV,” a debtor tells the world that the debtor is seekingto reclaim the asset itself.

39Thus, when a debtor lists “100% of FMV” on its schedule for exemptions and no one objects, the

debtor effectively reclaims the property under Schwab and Taylor.40The open question for the court to decide was: What happens

when a debtor lists “100% of FMV” and an objection is drawn?

Ultimately it held that because “100% of FMV” is not a value within the statutory limit, it renders the exemption claimfacially invalid and thus objections on that basis are properly sustained.

41In reaching this conclusion, the court noted that at

least with respect to exemptions premised on a statute that allows for the exemptions of an “interest,” an evidentiary hearing onthe actual value of the asset is unnecessary as it is irrelevant to the value of the exemption—an amount provided by statute.

42In

other words, “what is frozen as of the date of filing the petition is the value of the debtor’s exemption, not the fair market valueof the property claimed as exempt.”

43And since the debtor is only entitled to a cash payment equal to his or her interest, title

of the property necessarily remains with the estate. It does not pass to the debtor following an evidentiary hearing on the marketvalue of the asset—an irrelevant factor in so far as the propriety of the exemption is concerned.

44

To illustrate, the court discussed a recent opinion from the Ninth Circuit assessing exemptions claims in light of Schwab.45

In Gephart, the debtors claimed the equity in their home as exempt in an allowable statutory amount.46Like in Schwab, the

Gephart trustee had no reason to object.47However, the house appreciated substantially during the pendency of the case and the

trustee later moved to sell the house in order to realize the excess value for the estate.48The Circuit, relying on the reasoning in

Schwab, emphasized the statute did not permit the exemption of the house itself, but rather the specified dollar amount of interestin the house.

49

Acknowledging this is undoubtedly a harsh result for the debtor who relies on exempting the asset itself, the court suggesteda practical solution.

50Under the Code, a party in interest may request the court order a trustee to abandon any property of the

estate that is burdensome or is of inconsequential value and benefit to the estate.51The court noted a motion to abandon would,

at least, force the trustee to confront the issue of whether a particular asset has or will have any value worth administering.52If

the trustee is ordered to abandon the property, it will pass in-kind, to the debtor.53Of course, a trustee could alternatively

convince the court the asset should remain with the estate as it is likely to yield excess value for the benefit of creditors.

Finally, the court held that the Schwab analysis is not entirely inapplicable to exemptions statutes that concern property in-kind like in Texas.

54It explained that under Schwab, the objecting party still looks to the same three entries: the description

of the property, the applicable exemption statute, and the amount claimed. However, since in Texas debtors are entitled toexempt property in-kind up to $30,000 for an individual or $60,000 for a married couple, if a debtor claims “100% of FMV”he has not listed a value within the allowed exemptible amount. Thus, an objection to the face of the claim is properly sustained.

55However, because the statute exempts the property itself, and not an interest in the property, the trustee is on notice

that the value of the property is relevant.56Like in Taylor, if a trustee does not object to this facially invalid claim, the asset will

pass to the debtor regardless of its actual value. Therefore in these cases it will be worthwhile to hold an evidentiary hearing toascertain whether the fair market value of the asset falls within the exemptible statutory allotment.

Conclusion

It seems the first diversion between the Moore and Salazar courts is the manner in which they read the “100% FMV” language of Schwab. Where Moore takes its inclusion as a suggestion, Salazar reads it as a comment on what is likely to happen.In either case, both courts agree that if a debtor tacks the language onto his exemption claim and draws no objection, he removesthe entire asset from the estate—even if he is only entitled to an interest in the asset.

The courts’ divergence begins after an objection is drawn to exemptions allowing only an “interest” in property. On the onehand, the Moore court believes the relevant inquiry is the fair market value of the asset. Salazar, on the other, finds the value of



21


the asset itself irrelevant to the amount of interest a debtor has in the property. That amount is clear; it is the amount allowedby the statute.

As predicted by Schwab, the most important issue is how debtors may keep an entire asset even if they are only entitled toan “interest” in the asset. The Moore court decided that an evidentiary hearing is held and, assuming the value of the asset

57is

within the statutory limit, title passes and the asset goes to the debtor. Salazar offers no such solution. Title to the asset resideswith the estate. Although this approach is undoubtedly less favored by debtors, it is arguably a more faithful reading of section522. Congress presumably intended to allow debtors to exempt a fixed and uniform amount. This goal was achieved by, in mostinstances, specifying a concrete “interest” a debtor may exempt from an asset. Giving them more, i.e., the asset itself, subvertscongressional intent. Further, the Salazar approach accounts for the fact that asset values are fluid. Salazar did not ignore thenightmare situation that can occur (as it did in Gephart) where the value of an asset increases over time. While not a silver bullet,the court pointed to a method grounded in section 554 of the Code to pass title to the debtor and thereby assuage fears that itwill be subsequently sold by the trustee.

Finally, the courts disagree about whether Schwab has any applicability when the Texas statutes are at issue. Moore says noway no how. Salazar finds Schwab still applies, at least with respect to the threshold elements of a facially valid exemption claim.This approach recognizes that although the Court in Schwab acknowledged there were some federal exemptions that, like Texas,exempt property itself, it did not limit its analysis to only those exemptions that provided for an “interest” in an asset.

Despite having taken a backseat to discussions about Stern v. Marshall, questions concerning the proper reading of Schwabare likely to persist and be of great importance to consumer bankruptcy bars across the country. We are lucky in Texas to havehad at least two of our courts issue thoughtful opinions on the matter to guide us going forward.

ENDNOTES

1 Id. at 2657.

2 Id.

3 Reilly coupled two federal exemption provisions to achieve this result. She claimed $1,850 as exempt under § 522(d)(6) “tools of thetrade” and $8,868 under the § 522(d)(5) “wild card” exemption. Id. at 2658.

4 Id.; see also Fed. R. Bankr. P. 4003(b).

5 Schwab v. Reilly, 130 S. Ct. 2652, 2658 (2010).

6 Id.

7 Id. at 2658-59.

8 See id.

9 Id. at 2658.

10 See id.

11 See Schwab v. Reilly, 130 S. Ct. 2652, 2660 (2010).

12 Id. at 2659.

13 Id.

14 Id. at 2461, 2463. The Court noted that some federal exemption provisions exempt an unlimited amount of an asset (veteran’s bene-fits for example) or the asset itself (i.e., the asset “in-kind”). E.g., §§ 522(d)(7), (9)-(12).

15 Id. at 2663.

16 See id.

17 Schwab v. Reilly, 130 S. Ct. 2652, 2663 (2010).

18 Id. at 2666. Continued on page 22.

22


19 Id.

20 See id.

21 Id. at 2667.

22 See id. at 2666.

23 See Schwab v. Reilly, 130 S. Ct. 2652, 2666 (2010).

24 See id. at 2669

25 Id. at 2668 (internal footnotes omitted).

26 Id. at 867.

27 Id.

28 Id.

29 Id.

30 Id.

31 Id. at 868. In a May 2011 oral ruling, Judge Gargotta also held the inclusion of “100% FMV” on Schedule C was permissible.

32 In re Moore, 442 B.R. 865, 868 (Bankr. N.D. Tex. 2010).

33 Id.

34 Id.

35 Id. (citing Schwab, 130 S. Ct. at 2668).

36 Id. at *1.

37 Id.

38 Id.

39 Id. at *5.

40 Id.

41 Id. at *7. At least three other courts have similarly held claims for “100% of FMV” are improper. See In re Winchell, No. 10-05827,2010 WL 5338054 (Bankr. E.D. Wash. Dec. 20, 2010); In re Stoney, 455 B.R. 543 (Bankr. E.D. Va. Feb. 9, 2011); In re Hefel, No. 11-CV-1010-Lrr, 2001 WL 3292929 (N.D. Iowa Jul. 29, 2011).

42 Id.

43 Id. at *6 (citing Gephart, 621 F.3d at 1211).

44 See id.

45 In re Gephart, 621 F.3d 1203 (9th Cir. 2010).

46 In re Salazar, No. 10-50360, 2011 WL 1104109, at *5 (Bankr. N.D. Tex. Mar. 23, 2011).

47 Id.

48 Id

49 Id.

50 Id. at *7.

51 Id. at *7 (citing to 11 U.S.C. § 554(b)).

52 In re Salazar, No. 10-50360, 2011 WL 1104109, at *7 (Bankr. N.D. Tex. Mar. 23, 2011).

53 Id.

54 Id. at *8.

55 Id.

56 Id.

57 It is unclear whether the debtor has the burden of showing a plausible basis that the asset’s value is within the statutory limit as of thedate of filing or as of the hearing date.


23


On June 17, 2011, new Chapter 64 of the Texas Property Code became law.1As a result, all existing and future assignments

of rents in loans secured by Texas real property create security interests, not absolute assignments, regardless of the language inthe loan documents. The assignments of rents are perfected upon filing the deed of trust in the public records, and the lenderis entitled to collect all unpaid or prepaid rents upon default from the borrower and from the borrower’s tenants by giving themproper, statutory notice. The borrower is entitled to keep the rents it had previously collected, except prepaid rents. The tenantwho ignores the lender’s demand risks having to pay rent twice because the tenant cannot discharge its rent obligation by payingthe landlord after receiving proper notice and demand from the lender.

These provisions of Chapter 64 apply retroactively to all loan documents regardless of conflicting terms in the documents;and so, the Texas legislature has put an end to over twenty years of uncertainty and litigation over the validity and enforceabilityof “absolute assignments” of rents in lending transactions and has brought some certainty to the bankruptcy process.

Lenders typically include “absolute assignments” of rents in real estate loan documents. Under these “absolute assignments,”the lender claims ownership of the rents but grants a license to the borrower to collect and use the rents prior to default. If theborrower defaults, the lender claims to have the right to revoke the license, effectively preventing the borrower from using therents to operate the property, pay professionals, or restructure the debt in bankruptcy.

In most states, courts held that these “absolute assignments’ were legal fictions and were, in reality, nothing more than securityinterests; so that title remained in the borrower and the borrower could use the rents to operate the property in bankruptcy.

3

But in other states, such as Texas, courts have reached conflicting results, particularly federal and bankruptcy courts interpretingTexas law. This has created continuing uncertainty and sparked substantial litigation.

The Texas Supreme Court introduced an element of uncertainty in Taylor v. Brennan, 621 S.W.2d 592 (Tex. 1981) by suggestingthat it would be possible to have an absolute assignment even if it were a security device. The 5th Circuit Court of Appeals tooknote of that and gave full force and effect to an absolute assignment in a loan agreement in FDIC v. International PropertyManagement, Inc., 929 F.2d 1033 (5th Cir. 1991), finding that the rents belonged to the lender.

Although this is an issue of state law, the controversy has most frequently played out in bankruptcy courts because the borrower is often compelled to seek bankruptcy protection to stop the lender from seizing the rents in state court proceedings.The results have been mixed, with some courts interpreting and enforcing assignments as absolute assignments

4and other courts

construing them as collateral assignments or, in the alternative, determining that the rents are property of the bankruptcy estateregardless of the nature of the assignment.

5

Moreover, because the common law does not provide for filing to “perfect” a security interest in rents, considerable controversyhas arisen as to the extent of the lenders’ rights to rents upon default, as well as to what the tenants rights are when they arecaught in the crossfire.

Now those controversies are history. Under Chapter 64, the rents belong to the borrower, even after default, subject to thesecurity interest of the lender. The borrower is entitled to use rents it collected prior to default. Conversely, if the borrower paysprofessionals a retainer with rents it collects after receiving demand from the lender, the professionals may be at risk because thelender’s right to collect rents extends to identifiable cash proceeds from rents accruing after the lender sends notice.

Chapter 64 does not address the affect of a bankruptcy filing. If the borrower files for protection under the BankruptcyCode, the rents become property of the estate under § 541 of the Code and cash collateral under § 363(a). Section 363(a)defines “cash collateral” to include pre-petition rents and rents subject to a security interest under § 552(b). Section 552(b)(2)provides that, if a security interest extends to property of the debtor acquired before the commencement of the case and to rents,then the security interest extends to rents from the property collected after the commencement of the case.

THE ABSOLUTE ASSIGNMENT OF RENTS IN TEXAS REAL ESTATE LOANS IS DEAD

By: Stephen A. Roberts1, Strasburger & Price, LLP ([email protected])


24


The adoption of Chapter 64 may create some issues regarding the interplay between state law and the Bankruptcy Code.Under § 363, the debtor can only use rents which constitute cash collateral by providing adequate protection to the lender’sinterest in the debtor’s property.

6However, Chapter 64 creates a distinction between the rents covered by the lender’s lien and

the rents the lender is entitled to collect upon default. The lender has a perfected lien on all rents as of the filing of the deed oftrust but can only enforce its lien against uncollected or unpaid rents after default and after the lender makes demand for therents from the borrower. So a question may arise as to whether the lender is entitled to adequate protection for the use of rentswhich the debtor has collected prior to the lender’s notice even though the lender would not be entitled to collect those rentsunder state law. On the one hand, the rents are within the Code’s definition of “cash collateral” and so it would seem that thedebtor would have to provide adequate protection to use the rents; on the other hand, the value of the collateral which the creditoris entitled to collect under state law, that is, the value of the lender’s interest in the debtor’s property, is not diminished by thedebtor’s use of those rents. A related question is whether the lender must seek and obtain relief from stay to send a demand forthe rents in order to trigger its right to collect the rents under Chapter 64 or to have a right to adequate protection for the useof rents. Time will tell.

Here are some HIGHLIGHTS of the new law:

• The Act retroactively governs the enforcement, perfection and priority of a security interest in rents, and the attachmentand perfection of a security interests in the proceeds.

7

• An assignment of rents in a real estate loan transaction creates a security interest in accrued and unaccrued rents relatingto the real property regardless of whether the assignment is in the form of a collateral or absolute assignment of rents.

8

• An assignment of rents is not effective in a home equity loan or a reverse mortgage9and cannot be enforced against the

borrower’s homestead if the homestead is a one to four family dwelling and the property was the borrower’s homesteadboth when the assignment was executed and when the enforcement action is taken.

10

• “Rents” includes “consideration payable for the right to possess or occupy, or for possessing or occupying real property.”11

• The security interest is perfected when the document creating the assignment is filed in the county where the real propertyis located and takes priority over subsequent liens on the real property.

12

• The lender automatically has a security interest in rents under any deed of trust filed on or after June 17, 2011, regardlessof whether the deed of trust specifically includes an assignment of rents.

13

• After default, the lender can enforce the assignment by: (1) giving notice to the borrower, (2) giving notice to the tenants,and (3) exercising other remedies under Texas law (such as seeking the appointment of a receiver).

14

• Upon giving notice, the lender is entitled to all uncollected rents and all pre-paid rents. The lender is not entitled torents already collected by the borrower, except for pre-paid rents that accrue on or after the date the lender gives notice.The tenant is not obligated to pay to the lender any rent that was prepaid to the borrower (i.e. the landlord) before thetenant received notice from the lender.

15

• The lender’s security interest in rents extends to identifiable cash proceeds either in a segregated account or in a com-mingled account to the extent the proceeds can be traced under methods of tracing, including equitable principles,allowed by Texas law.

16

• If the borrower collects rents which the lender is entitled to collect, the borrower must turn those rents over to the lenderwithin 30 days after receiving the lender’s notice or such other time as required by the agreement, less any amount forexpenses authorized by the agreement.

17

• If the borrower does not turn over the rents, the lender can sue the borrower for the rents and for attorneys’ fees providedunder the assignment.

18

• If a lender enforces the assignment by notifying the tenants to pay the lender, the lender must use the form of noticespecified in detail in the statute and must be signed by the lender’s agent.

19



25


• After the tenant receives the notice, the tenant is obligated to pay rent to the lender and cannot satisfy its obligation topay rent by paying the landlord (unless the property is the tenant’s primary residence).

20

• If the property is the tenant’s primary residence, the tenant can discharge his or her obligation to pay rent by payingeither the lender or the borrower, i.e. the landlord).

21

• The lender does not have any obligation to use the rents to protect or maintain the property (unless otherwise agreedin writing)

22but the tenant retains any claims or defenses to paying rent that it otherwise has under its lease or under

the law, unless the tenant agrees otherwise.23

• The tenant is not in default under the lease for non-payment of rent accruing during the 30 days after the tenantreceives notice until the earlier of (1) 10 days after the next rent payment is due, or (2) 30 days after receiving the notice,unless the tenant has signed a document providing otherwise.

24

• The tenant is required to continue paying rents to the lender until the tenant receives a signed document from the lendercanceling the notice, a court order, or a signed notice that a lender with a superior lien has foreclosed on the property.

25

• The statute has a number of provisions relating to the rights and obligations of competing lienholders which should beconsulted when there is more than one lien on the rents.

• The statute does not mention the affect of a bankruptcy filing by the borrower/landlord on the tenant’s obligation to payrent to the lender. Under bankruptcy law, the rents are property of the bankruptcy estate

26and all parties are automatically

enjoined from exercising control over property of the estate.27Lenders may be well advised to rescind the notice upon

the borrower’s filing bankruptcy to avoid the imposition of sanctions,28and borrowers may be well advised to immediately

obtain a bankruptcy court order directing tenants to pay rent to the borrower.

• The statute allows notice to parties by certified mail, regular mail or by any means agreed to by the intended recipient ofthe notice. To the extent the statute requires that a notice be signed, the signature can be an electronic signature.

29

• Generally, the lender can apply the proceeds to the reimbursement of reasonable attorneys’ fees and costs of collection,reimbursement of expenses it incurs in protecting or maintaining the property, payment of the secured obligation, paymentof subordinated secured creditors who give the lender notice, and any balance to the borrower.

30

A key feature of the statute is that the rights of the lender, borrower, and tenant are fundamentally affected by notice asspecified in the statute. The statute provides flexibility to lenders, borrowers and tenants to agree on means of notice, includingelectronic notice, as well as to define the address for notice, and to vary the relative rights between the lender and the tenantupon the borrowers default. Because the rights of the parties are fundamentally affected by notice under the statute, it is criticalthat the notice agreed upon in the documents serves to provide actual notice to the intended recipient. For example, the tenantis legally obligated to pay rent to the lender upon receiving effective notice under the statute but the tenant is frequently not aparty to an agreement with a lender. The statute provides that, under some circumstances, the lender can use the same meansof notice the landlord is required to give the tenant under the lease even though the lender is not a party to the lease. Tenantswill want to make sure that the notice provisions in the lease provide them actual notice and lenders may want to add provisionsto assignments of rents requiring that leases on the property contain specific notice provisions acceptable to the lender.

ENDNOTES

1 Mr. Roberts is a shareholder in the Austin office of Strasburger & Price, LLP and is board Certified in Business Bankruptcy Law by theTexas Board of Legal Specialization. The opinions expressed in this article are his own.

2 Readers are cautioned that the author is paraphrasing the complex provisions of the new law to provide readers a general understand-ing, and that they should not rely on this article for specific legal advice but should seek the assistance of capable counsel. The authorhas taken the liberty of substituting the terms “borrower” and “lender” for “assignor” and “assignee” respectively for the sake of clarity.

3 See In re Buttermilk Towne Center, LLC, 442 B.R. 558 (B.A.P. 6th Cir. 2010).



26


4 See In re Fry Rd. Assoc., Ltd., 66 BR 602 (Bkrtcy. W.D.TX 1986); In re FRE Real Estate Inc. Letter Ruling on Motion to Use CashCollateral; Case No. 11-42042, Docket No. 64, entered April 29, 2011

5 See In re Amaravathi, LP, 416 BR 618 (Bkrtcy S.D.TX 2009); In re Allen, 357 BR 103 (Bkrtcy S.D.TX 2006)

6 Adequate protection is a term of art which means a payment, a replacement lien or other relief sufficient to protect the lender againstdiminution in the value of its collateral during the bankruptcy. In re Scopac, 624 F.3d at 278, fn. 1 (5th Cir. Tex. 2010).

7 S.B. No. 889 § 3(a).

8 § 64.051(a) and (b).

9 § 64.051 (a); Tex Const. Art. XVI, §50(a)(6),(7), and (8).

10 § 64.054(c).

11 § 64.001(9). The definition of rents is much broader and includes virtually any payments owed to the assignor relating to owning,operating, improving or leasing of real property as well as proceeds from rental interruption insurance.

12 § 64.052(a) and (b).

13 § 64.051(a); S.B. 889 §3(c).

14 § 64.053(a).

15 § 64.053(b).

16 § 64.061(a) and (d).

17 § 64.060(a).

18 § 64.060(b).

19 § 64.055(a). The statute requires that the notice substantially comply with the form prescribed in § 64.056.

20 § 64.054(3) and (4).

21 § 64.054(c)(3).

22 § 64.059(a).

23 § 64.059(b).

24 § 64.054(d).

25 § 64.055(c)(5).

26 11 U.S.C. § 541.

27 11 U.S.C. § 362.

28 The lender’s interest in rents is protected by bankruptcy law because the borrower must get a bankruptcy court order to use the rentswhich requires adequate protection for the lender’s interest usually in the form of approved budget for expenses to maintain the property.11 U.S.C. § 363.

29 § 64.002; §64.001(13); §15.002.

30 § 64.058.


27


Deborah B. Langehennig, Litigation Claims in Consumer Bankruptcy Cases, ABA Bankruptcy andInsolvency Litigation, Summer 2011, Vol. 16, No. 4

Christal Delgado, Metadata is “The New Black”: Recent Trends Related to Discovery Rules & What YouNeed to Know Regarding the Discovery of Metadata, DRI-FOR THE DEFENSE, Sept. 2011.

Christal Delgado, “Going Native” in the Courtroom: A Practical Guide in Deciding Whether to Seek toAdmit Electronically Stored Information in Native Format, ABI-LITIGATION COMMITTEE NEWSLETTER, Sept. 2011.

Member Publications

Timothy A. Million,Munsch Hardt Kopf & Harr, P.C.700 Louisiana St., Ste. 4600 • Houston, Texas 77002

(713) 222-4010; fax: (713) [email protected]

Eric M. Van Horn, Rochelle McCullough, LLP325 N. Saint Paul, Suite 4500 • Dallas, Texas 75201

(214) 580-2511; fax: (214) [email protected]

Rachel Kingrey, Gardere Wynne Sewell LLP1601 Elm Street, Suite 3000 • Dallas, Texas 75201

(214) 999-3000; Fax (214) [email protected]

Editorial Staff

Dallas

Michael Haynes (formerly of Gardere Wynne & Sewell) joined Akin Gump Strauss Hauer & Feld, LLP asCounsel.

Sara Wahl (formerly of Akin Gump Strauss Hauer & Feld, LLP ) joined Curran Tomko Tarski LLP

Artoush Varshosaz (formerly of Baker Botts, LLP) joined K&L Gates, LLP as Associate.

Rachel Kingrey (formerly Law Clerk to the Honorable Robert L. Jones) joined the trial section of GardereWynne Sewell LLP as an associate.

Troop Movement

28


October 12 – 15, 2001 National Conference of Bankruptcy JudgesTampa Marriot Waterside, Tampa, Floridahttp://www.ncbj.org/NCBJ_2011_Conference_Brochure.pdf

October 20 – 21, 2011 27th Annual West Texas Bankruptcy Institute ConferenceOverton Hotel, Lubbock, TexasFor information contact:Wendy M. Durbin2721 81st StreetLubbock, TX 79409(806) 771-7500

November 17 – 18, 2011 30th Annual Jay L. Westbook Bankruptcy ConferenceFour Seasons Hote, Austin, Texashttp://www.utcle.org/conference_overview.php?conferenceid=911

For more information on bankruptcy law events around the country visithttp://www.abiworld.org/Content/NavigationMenu/MeetingsEvents/CalendarofEvents/Calendar_of_Events_2.htm

September 29, 2011 BOK Law Course – Houston9:00 AM – 4:00 PM CST TMA International Headquarters

Porter & Hedges LLP1000 Main Street, 36th FloorHouston, TX 77002-6336

October 5, 2011 CFA Dallas – 17th Annual CFA Southwest Chapter Charity Golf Tournament12:00 PM The Old American Golf Club

October 17, 2011 ACG Dallas 8th Annual Member/Guest Golf Tournament

Calendar of Upcoming Events

Local Events

PREVIEW OF UPCOMING CONFERENCES

27th Annual West Texas Bankruptcy Institute Preview

Always a great excuse to throw on your boots! Come to the 27th Annual West Texas Bankruptcy Institute conference atthe Overton Hotel in Lubbock October 20-21. Scheduled to appear are the Honorable Bankruptcy Judges Jones, Bohm,Lynn, Nelms, Parker, Schmidt, and Michael, as well as Judges Smith and Southwick from the Fifth Circuit. Additionally,bright minds from across the state will appear to give commentary and analysis on topics ranging from bankruptcy juris-diction post-Stern (a program entitled “Handling Anna Nicole’s Assets”) to tips on basic trial techniques (“Cross-Examination—The Lost Art”). With Byrnie Bass at the microphone and dinner at the American Wind Power Centerand Museum, its guaranteed to be a good time.

For more information contact Wendy Durbin 806-771-7500.

29


The Young Lawyers Committee for the Bankruptcy Section is a group of motivated young attorneys from across the State whohave volunteered their time and talent. The purpose of the Committee is to increase the involvement of and integrate younglawyers on a State-wide basis into the Section at all levels, promote participation of young lawyers in seminars and events at allstages, and raise the visibility of our young lawyers by assisting them in professional networking and promoting professionaldevelopment on a State wide basis. The Committee holds monthly conference calls on the second Wednesday of each month,and has a variety of exciting opportunities in which young bankruptcy professionals can become involved. If you are interestedin joining, please contact one of the Committee’s new officers below.

THE COMMITTEE’S LEADERSHIP IS COMPRISED OF:

Jermaine Watson of Dallas, Chair ([email protected])

Eric Van Horn of Dallas, Vice-Chair ([email protected])

Vanessa Gonzalez of Lubbock as Secretary ([email protected]).

THE COMMITTEE’S LIAISONS TO THE RESPECTIVE SECTION’S VICE-PRESIDENTS ARE:

Liaison – Public Education – Jessica Hanzlik

Liaison – Business Division – Russell Perry

Liaison – Non-Lawyer Outreach – Jonathan Howell

Liaison – Professional Education – Sara Keith

Liaison – Law School Relations – Jessica Voyce

Liaison – Communications – Rachel Kingrey

Liaison – Consumer Division – Lloyd Kraus

Liaison – Membership – Angie Offerman

The State Bar of Texas Bankruptcy Law Section is dedicated to providing Texas practitioners, judges,and academics with comprehensive, reliable, and practical coverage of the evolving field of bankruptcy law. We are constantly reviewing articles for upcoming publications. We welcome yoursubmissions for potential publication. In addition, please send us any information regarding upcomingbankruptcy-related meetings or events. We also invite any announcements for our “TroopMovement” section.

If you would like an article or event to be considered for publication please send it by email [email protected], [email protected], or [email protected].

Please format your submission in Microsoft Word. Citations should conform to the Blue Book andTexas Rules of Form and the Manual on Usage, Style & Editing.

Please visit our website: http://www.txbankruptcylawsection.com/.

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